Pakistan eyes 3.6% growth for next year, inflation to dip to 12%

Pakistan’s Planning Ministry said on Friday that the economic outlook for the next year was positive, with a growth target of 3.6%, while inflation was likely to moderate to 12%.

Pakistan will present its annual budget on June 10, three days later than expected, two government sources said on Friday, as markets wait for details of plans seen as crucial to securing a new International Monetary Fund (IMF) loan. Pakistan’s fiscal year starts on July 1.

“The growth prospects hinge upon political stability, exchange rate, macroeconomic stabilization under IMF’s programme and expected fall in global oil and commodity prices,” the ministry said in its annual plan review.

Earlier in May, in its half-yearly report, Pakistan’s central bank said the economy was grappling with structural bottlenecks exacerbated by political uncertainty, despite some improvement in macroeconomic indicators. It predicted real GDP growth of 2%-3% for fiscal 2024.

The Planning Ministry said the fiscal deficit would narrow on the back of fiscal consolidation measures, and that domestic average inflation was likely to moderate to 12% owing to falls in global inflation.

Pakistani inflation is set to come in between 13.5% and 14.5% in May and to ease further to 12.5% to 13.5% by June, the finance ministry said on Wednesday in a monthly update.

Pakistan has been beset by inflation above 20% since May 2022, registering a high of 38% in May 2023, as it navigated reforms as part of an International Monetary Fund bailout programme. However, inflation has slowed over the past few months.

The planning ministry added that the Annual Plan Coordination Committee had approved an estimated 1.22 trillion rupees ($4.39 billion) for public sector development spending during the next fiscal year, lower than the 2.8 trillion rupees ($10 billion) requested by the ministries, due to fiscal constraints.

Pakistan will present its annual budget three days later then expected on June 10, two government sources said on Friday, as markets waited for details of the plans seen as crucial to securing a new International Monetary Fund (IMF) loan.

The sources said the timing had been changed as Prime Minister Shehbaz Sharif and Finance Minister Muhammad Auragzeb would be travelling on June 4-8 to China, a key source of investment and support for the South Asian nation’s struggling economy.

One of the sources, a finance ministry official, said the budget for the financial year 2024/25 would be particularly important given the discussions with the IMF. The information ministry did not respond to a request for comment.

An IMF mission held two weeks of technical and policy level talks with Pakistani officials before it left last week to discuss fiscal consolidation measures to lay the groundwork for the new loan.

The talks made significant progress towards reaching a staff-level agreement for an extended fund facility, the IMF said after they concluded.

The IMF had opened discussions on the new loan after Islamabad completed a short-term $3 billion programme which helped stave off a sovereign debt default last summer.

Pakistan is likely to seek at least $6 billion under the new programme and request additional financing from the IMF under the Resilience and Sustainability Trust.

Officials have said the talks focused on the budget targets and structural reforms to contain the fiscal deficit, which including raising tax to GDP, managing energy sector debt, the sale of state-owned enterprises and external financing.

Analysts at Standard Chartered who recently visited the country to meet with policymakers, banks and investors said there was an expectation that the budget would be contractionary and focused on widening the tax base, rationalising spending and addressing structural weaknesses.

“The budget will also be an important test for the new finance minister,” Standard Chartered’s Farooq Pasha said in a note to clients.

“A key concern among local stakeholders was the risk that front-loading tough fiscal measures could face a backlash from the public.” Later on Friday, the country’s planning ministry in its annual plan review said Pakistan’s economic outlook for the next year was positive with a growth target of 3.6%, while inflation was expected to moderate to 12%.

“The growth prospects hinge upon political stability, exchange rate, macroeconomic stabilization under IMF’s programme and expected fall in global oil and commodity prices,” the ministry said.

“Fiscal deficit is expected to narrow down on the back of fiscal consolidation measures,” it said, adding that domestic average inflation is expected to moderate to 12% owing to falling global inflation.

Pakistan Bureau of Statistics said recently that the country’s economy grew 2.09 per cent in the third quarter of the financial year 2023-2024, supported by higher growth in agriculture, the

The estimated provisional growth rate of gross domestic product (GDP) for the financial year ending June 2024 is 2.38 per cent, the bureau said in a statement.

That compares with a revised 0.21 per cent contraction in the 2023 year when political unrest, a combination of tax and gas tariff hikes, controlled imports, and a steep fall in the rupee currency rapidly pushed up inflation.

Agencies